Balance the Budget, NOW!

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Another treasury sell-off is happening right now. This means people are getting rid of their treasury bonds, the pieces of paper promising cash in the future that the federal government gives to people in exchange for cash now.

Why would people want to dump the bonds? Simply because the federal government may not be able to pay them.

So the federal government is left with two choices. Either it stops issuing bonds, or it raises the promised pay outs on the bonds.

Actually, it only has one option: Stop issuing bonds. See, by raising the promised payouts, the federal government is hoping someone out there believes the government can actually pay on its loans. No one believes that today. The federal government will never be able to pay its loans back, and it can barely afford interest on the loans today.

Why do I say this? Because when the president and many republicans in congress come to an agreement to cut taxes, the majority party in power disagrees. They want to raise taxes. However, everyone knows that raising taxes won’t actually raise revenues. We know this because the last time taxes were cut, revenues jumped.

Here’s what needs to change, and what won’t change for a long time.

1. The federal government must pursue aggressive cuts in spending. By aggressive, I mean cutting spending by 50% of more. This means everything is on the chopping block. A simple way to do this is to simply look at the constitution and cut out everything that is not clearly in that document from our spending. Bye-bye Social Security, Medicare, welfare, unemployment benefits, along with the larger portion of our government. The only thing that really survives this is the military. Let’s face it, without a strong military, we have no future.

The federal government has vast assets it can use to raise money temporarily. It can sell these assets, mostly the land and buildings, and raise quite a sum of money.

But the federal government also has a tool which, once used, can give congress a massive amount of hard cash to play with, in the order of tens of trillions. By raising the bank reserve rate (the amount banks must have before writing a loan) to 100%, and putting the power of money printing back in the hands of congress, we can transfer a tremendous amount of wealth from the banks to congress. This money can be used to pay off the national debt, although the balancing act of transferring this cash is something only a few people can actually understand let alone pull off.

In the long term, as long as congress only prints money at a rate matching the growth of the economy, ensuring the dollar neither increases nor decreases in value, it can have vast fortunes to play with that it creates from thin air without harming the economy.

2. The federal government must simultaneously dramatically cut taxes, and by dramatically, I mean cutting tax rates until they are so low no one even notices them. I’m thinking an income tax somewhere around 1%, and and elimination of pretty much every other tax. Or a consumption tax of around 1%. If it is possible to print cash and finance all of the government’s operations, then we can eliminate taxes altogether. What a world that would be!

3. The federal government must also stop enforcing the endless regulations on the books. We can do this simply by saying no regulatory body has any power to write a single regulation of any force because the constitution says only congress has that power. We can also ask the president to stop enforcing unconstitutional laws.

The effects of these three dramatic changes will be a dramatically diminished federal government, and a dramatically enhanced economy. The massive debt on our and our children’s heads will seem manageable if only we can get the economy to grow faster than the interest rate, consistently, forever. That can only happen if we make it advantageous to invest in our economy, which happens only if we practically eliminate all regulation and taxation. We are, after all, competing with countries with a 0% corporate tax rate, and countries where the only regulation is don’t do harm.

This cannot happen and will not happen for a very long time, unless something gives. Here are the things that are going to give, and they are giving and have been giving for some time now.

1. The people who produce wealth in this country no longer produce it, not out of choice but necessity.

2. The federal government runs out of money to spend, with no way to tax, borrow, or print it.

3. The people who depend on government checks no longer receive them.

What will a world look like with a powerless federal government (unable to enforce its regulations), a destitute people (not receiving any government checks and incapable of creating wealth for themselves)? We’re going to find out very soon, because we are heading down that path.

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